Copyright © 2007 Pearson Education Canada Price “The exchange value of a good or service in the marketplace.” Value is based on: Tangible and intangible benefits Consumers’ perceptions of a brand Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Importance of Price An organization must establish fair and competitive prices while generating adequate revenues and profit. Low prices (perceived value) attracts customers WAL-MART High prices (perceived value) attracts customers Harry Rosen Copyright © 2007 Pearson Education Canada

Factors Influencing Price Consumers Nature of Market Channel Members Costs Profit Objectives Price Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Nature of Market The market structure and the degree of competition in the market influence priding strategy. Monopoly Oligopoly Monopolistic Competition Pure Competition Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Nature of Market Single seller sets price, usually subject to regulatory approval. Monopoly A few large sellers follow each other on price. If one goes up the others follow. Oligopoly Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Nature of Market Among similar competing brands the market leader sets the price; others establish competitive or lower prices Monopolistic Competition Pure Competition The market supply and demand sets the price. Copyright © 2007 Pearson Education Canada

Consumer Demand and Price Principle: Consumers purchase greater quantity at lower prices The effect of a price change on demand must be factored into pricing strategy. Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Elasticity of Demand Price Elasticity of Demand: Measures the effect of a price change on the quantity purchased. Small change in price; large change in volume Elastic Change in price does not have significant impact on volume Inelastic Copyright © 2007 Pearson Education Canada

Channel Members Influence Price Mfg. Wholesaler Retailer Consumer Adequate Margin Fair Treatment Special Deals Impact of Increases Organizations want distributors to charge prices that agree with the brand’s overall marketing strategy. Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Costs Influence Price All production, marketing and transportation costs must be factored into the price decision. Cost of Goods Marketing Transportation Other Costs Profit Margin Price + = Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Costs Influence Price All attributed costs and the desired profit margin influence the price charged. Costs can be controlled by: Improving operational efficiency Using less expensive materials Shrinking size Relocating manufacturing facilities Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Pricing Objectives Objectives Sales Profit ROI Objectives are: Stated quantitatively Influenced by competitors Influenced by cost increases from suppliers Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Competitive Pricing Pricing decisions help establish a desired competitive position in the marketplace Above competition Equal to competition Below competition Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Pricing Methods Full Cost Pricing Demand Based Pricing Competitive Pricing Total costs plus profit determines price What consumers will pay determines price Position relative to competitors determines price Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Break-Even Analysis A break-even analysis shows how many units must be sold to exactly break even, given fixed and variable costs, and a price. Above the BEP, the firm makes a profit. Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Demand Based Pricing The reaction of customers at retail determines the price to be charged. Backward Pricing Forward Pricing A mark-up is added at each level of the channel. Working back from the retail price, the manufacturing cost is determined. Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Pricing and the Law Price Claims that Mislead Improper Use of MSLP Double Ticketing / Bar Code Violations Bait and Switch Predatory Pricing Price Fixing Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Bartering Exchanging goods and services for other goods and services rather than for money. It is a reciprocal agreement among participants. Barter Exchange Operations Corporate Barter Companies Barter company takes a commission on the “buy” and “sell.” Copyright © 2007 Pearson Education Canada

Copyright © 2007 Pearson Education Canada Online Auctions An auction is a method of sale whereby an object for sale is secured by the highest bidder. B2B Lowest price bid often wins B2C Consumers compete against each other to drive up price of item. C2C Copyright © 2007 Pearson Education Canada